Retail giants circle Foodland

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Foodland Associated's attempt to kill a takeover bid from
Metcash Trading by separating its Australian and New Zealand
operations could be trumped by a clean bid for the entire business
from Woolworths or Coles Myer, according to fresh market
speculation.

Woolworths and Coles were both thought to have been interested
in buying the wholesale and retail grocery operator's 150 New
Zealand supermarkets.

However, investment bankers are believed to be pushing a
proposal for a full takeover bid by one of the major chains on the
grounds Australia's competition regulator would approve it.

Under the proposal, the chain would keep Foodland's NZ business,
pick the eyes out of its 81 Australian supermarkets and sell its
wholesale business.

It's believed the idea has not yet been run past the Australian
Competition and Consumer Commission, which would probably reject
any deal that significantly increased the number of Australian
supermarkets owned by either Woolworths or Coles.

However, market sources suggested either chain might be allowed
to be keep 10 of Foodland's West Australian and Queensland
stores.

In 2001, the ACCC cleared the sale of the 287-store Franklins
group, which included the sale of 67 stores to Woolworths. However,
Franklins was losing money, which is not the case for Foodland.

The speculation comes as investor confidence in Metcash's
complex $846 million hostile takeover bid for Foodland has
weakened. That proposal, launched in December, involved listing the
NZ business separately and selling the Australian supermarkets to
independent operators.

Shares in Metcash dipped another 1c to $2.89 yesterday while
Foodland edged up 1c to $24.61. Foodland's shares price has risen
more than $1 since it released its target statement last
Tuesday.

Perennial Investment, which still holds about 5 per cent of
Metcash, has been selling its Foodland shares while they are
supported by takeover speculation. Perennial's Hugh Giddy said he
believed Metcash would manage the assets better than Foodland but
he wasn't confident Metcash's bid would succeed.

He said Foodland's plan to replicate Metcash's proposal to split
the assets geographically missed the point. "They still have to
join up with a bigger brother [to take on Woolworths and Coles],"
he said.

Last month, Concord Capital cut its Foodland holding to 7.9 per
cent from 9.1 per cent, while over the past few months Perpetual
Investments' stake has fallen under 5 per cent from 13.5 per
cent.

However, UBS Global Asset Management has increased its holding
to 14.4 per cent.